rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » 300 firms to pay RBI penalty for violating FDI sectoral limits

300 firms to pay RBI penalty for violating FDI sectoral limits

September 08, 2009 01:57 IST

The Foreign Investment Promotion Board (FIPB) has advised 300-odd companies to pay the Reserve Bank of India (RBI) a penalty (known as 'compounding') for breaching sectoral limits on foreign direct investment (FDI).

These companies struck joint ventures with foreign partners before the government relaxed FDI sectoral limits by issuing Press Notes 2 and 4 in February this year, and had approached FIPB for approvals later.

FIPB sent a note to this effect to the RBI a month ago, advising the central bank to deal with such cases.

Before this, FIPB, the nodal agency for approving FDI proposals, only asked companies for fresh applications without insisting on compounding.

In June 2009, FIPB had rejected applications by direct-to-home entrant Bharti Telemedia and Tata Teleservices to waive fines incurred for not taking permission for indirect foreign investment in their companies last year.

Sources said compounding -- which entails settling a breach of rules and regulations that are non-criminal in nature with the regulatory authority concerned -- used to be the board's prerogative and was either waived or imposed depending on the seriousness of the issue.

"Compounding is a must for all such cases in which approvals have been sought for foreign joint ventures in contravention of limits imposed for foreign investment," official sources said, adding, "Otherwise, RBI would forward the cases to the enforcement directorate for further action and would hold it as a violation under the Foreign Exchange Management Act (Fema) in its records for future reference."

The companies concerned will be allowed to apply again for FDI relaxations under Press Notes 2 and 4 only after they have paid RBI the penalty, which is fixed as a proportion to the monetary value of the violation (that is, the extent to which the sectoral limit has been breached).

Although FIPB had made it clear that the new rules for calculating direct and indirect FDI in Indian companies specified in Press Notes 2 and 4 are not retrospective, there was initially some ambiguity over dealing with de-facto approvals.

The two press notes of 2009 state that foreign investment routed through an Indian company owned and controlled by resident Indians will not be taken into account while calculating the FDI limits. An Indian-owned company is defined as one in which resident Indians or Indian companies have more than a 50 per cent beneficial stake and control means the power to appoint the majority of directors.

Anindita Dey Mumbai
Source: